You hear that a private developer plans to build a new apartment building across the street. What does that mean to you? Here are some typical responses:

“More traffic and less street parking!”

“Crowded classrooms!”

“My home will lose value!”

“The character of the neighbourhood will change!”

Or the ever-popular-but-seldom-spoken, “The wrong kind of people will move in!”

The shorthand for this sort of reaction is not in my backyard (NIMBY)!

Resisting change and sticking to the old ways, the tried-and-true, is a very natural sentiment for most of us. We grow accustomed, attached even, to where we live, even if we often complain about it. For the most part we pretty much like the way things are. If someone proposes building something nearby, even if it promises to make our lives somehow better, we tend to resist because, well, it could also make things worse or make us adapt to a new way of doing things.

The policy question here, however, is whether some of us should be allowed to use the power of government against others in order to keep changes from happening that we don’t like. Is it right to use political power, the power to initiate violence, against other people who haven’t used violence against us? In particular, is it right to use political power to prevent a developer from building those apartments in our single-family neighbourhood?

Keep in mind that using political power to prevent others from buying and selling property in essentially non-violent ways can lead to consequences you probably wouldn’t like. Okay, well, like what?

For starters, how about artificially high real-estate prices, especially housing?

Across the US, but especially in highly productive cities such as New York and San Francisco, the cost of housing has reached alarming heights. It’s not unusual to see monthly rents for 2-bedroom apartments of over $4,000 or $5,000 in those cities. What’s behind all that? And why would anyone want to move where it’s so expensive to live?

Rising Demand and Static Supply

For one thing, as the great urbanist Jane Jacobs explained, these cities tend to be extraordinarily productive precisely because getting a lot of diverse people together, where they can mix and share knowledge, can enhance everyone’s productivity and creativity and allow them to experiment at a lower risk than in less densely populated cities. And such cities enhance the value of whatever the resources people possess—including their knowledge and skills—as well as offer them even greater knowledge, skills, and tastes. The opportunities and connections we can find in big cities create a big demand to live and work in those cities, and that’s partly why housing prices are high.

But there’s something else going on—or rather not going on. Places like the San Francisco Bay Area have some of the strictest building codes and zoning regulations in the country, which makes new construction there, especially new housing, very costly to build. As a result, the high demand to live in San Francisco isn’t matched by a corresponding increase in the supply of housing. Other things equal, that means housing prices rise faster and higher so that if you’re not already wealthy, it’s really hard to find a place to live.

Regulations that block multi-family housing, or that needlessly limit the height of new construction, or that forbid population density to rise beyond a certain level, or mandate minimum parking requirements, make housing more expensive for everyone but especially those living on low incomes. These kinds of regulations mean that the rich will usually be able to outbid the rest of us for space in a particular neighbourhood. But could the rest of us ever outbid the rich?

Building Higher and Denser

If land use is flexible, the answer is “yes.”

Take a very simple example. Suppose a 5,000 square foot, one-family luxury home costs $4 million to build, including the cost of land. That’s $1,000 per square foot. If instead, regulations allowed someone to divide that home into ten, 500 square foot studio apartments at a total cost of, say, $25 million, the cost per square foot would rise to $5,000 per square foot. But, since each apartment is only 500 square feet, the cost per apartment would fall to $500,000. That’s not cheap, but it’s far cheaper than what you would have to pay to outbid a very rich person for that single-family home.

If a developer can build taller buildings and more densely, and if they are allowed to sell or rent units that are smaller than many regulations today permit—so-called “micro-apartments—then the price per housing unit will fall even more, and eventually even the relatively poor might be able to outbid the rich to live in a given neighbourhood. This actually happens in places such as Tokyo, Japan, one of the most prosperous cities in the world, but where rents have not risen nearly as much as in New York, San Francisco, or London and where you tend to see a much wider mix of income levels sharing the same neighbourhoods.

YIMBYism

Things have gotten so bad in California and elsewhere in the U.S., a new movement has been growing called YIMBY, or “Yes in my backyard!”

In April 2018, California Senate Bill 827, “which would have allowed the construction of apartment buildings up to five stories tall near every high-frequency mass transit stop in the state” was defeated in a committee hearing. Passage of the bill would have been a significant step toward liberalizing building construction in a state where regulations have contributed to soaring housing prices. So it’s unfortunate that the bill didn’t pass. But the YIMBY movement is gaining popularity, even among those on the political left, and further efforts to liberalize development where housing is expensive will hopefully continue.

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